Season to be cheerful for home owners

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The Independent Online
THE DESPERATE scramble by Britain's mortgage lenders to find borrowers for their loans paid off for millions of home owners last week, as mortgage rates came down to their lowest levels for a generation - since 1966.

Halifax Building Society was in the vanguard of a solid phalanx of lenders on Wednesday as it announced a cut in its variable rate to 7.49 per cent. The reduction was the third in less than three months, and followed the Chancellor's own 0.25 per cent cut in interest rates.

Within the past few months, the cost of a home loan has been reduced by up to 1 per cent, cutting about pounds 40 a month off the cost of a pounds 50,000 interest-only mortgage. Most of the millions of borrowers affected will see the difference in the form of reduced mortgage payments from February.

The combined impression of seasonal good cheer plus hope for a revival of the mortgage market was best expressed by Charles Toner, managing director of Abbey National's retail division, who said: "This will be a welcome Christmas present for new and existing mortgage customers."

For some lucky borrowers with heavily discounted home loans, the series of reductions will even go as far as to virtually halve the size of their mortgage payments. For example, Yorkshire Building Society offered a one- year 6.1 per cent discount to first-time buyers over the summer and early autumn, giving a rate of 2.35 per cent when its mortgage rate stood at 8.44 per cent a few months back. By last week, the guaranteed discount meant borrowers were paying 1.49 per cent. And the society now says it will undercut all other leading lenders when it sets its new standard rate in response to last week's mortgage war, raising the possibility of borrowers paying barely pounds 50 a month on a pounds 50,000 mortgage.

The Halifax will be credited in some quarters for being the first to reduce its variable rate last week. But it was actually Skipton Building Society that led the way, cutting the cost of its own home loans by the same amount a full 24 hours earlier. After the Halifax's announcement, Bradford & Bingley, the Woolwich, Alliance & Leicester, Britannia, National & Provincial, Portman, Bristol & West, Coventry and Norwich and Peterborough followed suit within hours.

Most leading lenders are now bunched around a rate of 7.49 per cent, with Nationwide and Northern Rock marginally lower at 7.44. Abbey National has tiered rates, ranging between 7.54 per cent on loans up to pounds 60,000, down to 7.44 per cent above pounds 100,000. The tiny Newbury society has trumped all lenders by dropping its rates even further, to 7.29 per cent.

This latest wave of mortgage reductions now makes homes more affordable than they have been for years. Gerald Gregory, head of lending at Britannia Building Society, said: "It is now an excellent time for first-time buyers to take the plunge."

A side-effect of the standard rate reductions is likely to be the gradual phasing out of the special offers now available. This means moving fast to snap up some of the heavily discounted rates, before they are withdrawn from the market. And with most experts expecting a further rate cut sometime next year, borrowers with heavily discounted deals stand to benefit further. Two or three-year fixed rates may also be a good buy, say some experts.